The price band and oil price dynamics

July 29, 2009 | 00:00

The price band and oil price dynamics

The proposal for a crude oil price band seems to be gathering support. This comment discusses some of the limitations of an oil price band then it proposes a new framework for understanding the recent dynamics of oil price movements based on feedbacks. Rather than aiming at stabilising spot prices within a band the comment argues that the main objective of both oil importing and exporting governments should be to stabilise market participants' long term expectations. This requires a move away from focusing solely on the role of speculation and transparency issues towards a more general framework that also takes into account the inflexibilities in the oil market.

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